What has happened? CapitaLand China Trust reported a c.1.6% y-o-y decline in top-line revenue to RMB468.1m. The retail segment continues to perform better than the new economy segment, in line with our expectations, rising 5.7% y-o-y on a same-store basis (excluding divestment of the Shuangjing and Qibao malls). Underlying operational results continue to support the health of the retail segment and its high occupancy of c.98%, with shopper traffic and tenant sales increasing 17% and 13% y-o-y, respectively, on a low base. The new economy segment continues to see deepening woes, delivering a 6.6% y-o-y decline in gross revenues. Both the business parks and logistics segments continue to see a downward momentum in occupancies, landing at 90.2% and 67.6%, respectively. Notably, one of CLCT’s four logistics assets saw the vacation of its tenant in the quarter  and the asset will likely sit vacant for a period of at least 3 to 6 months while CLCT prospect new tenants to take over the space.

The capital management front was generally stable on a q-o-q basis, with gearing ending at 40.8%, and cost of debt of 3.47% (10bps decline q-o-q). RMB-denominated loans rose from c.20% of overall debt profile in 4Q23 to 23% this quarter, with a long-term target to increase onshore exposure to 30%. There will be no refinancing requirement for the rest of the year.

Our views. The vacation of CLCT’s Fengxian logistics asset was the second notable tenant vacation after the exit of the Shuangjing mall’s master lease (which was subsequently divested). Management guided that they expect at least three to six months of vacation for the asset, depending on the capex requirement of the new tenant. We remain cautious about tenant risk within the new economy segment, which will see an additional layer of submarket supply risk, potentially suppressing reversions. Retail remains the shining star across CLCT’s portfolio, where we believe reversionary rents from the completion of asset enhancement initiatives (AEIs) and inbuilt lease escalations within the portfolio should continue to help hold reversions flat for this segment, as we expect flat or marginally positive growth in net property income (NPI) for this segment this year.

Maintain BUY with lower TP of S$0.95 (previously: S$1.05). We factored in steeper negative reversions for CLCT’s logistics segment alongside the vacation of a 3PL tenant at Fengxian Logistics Park, while softening retail reversions for FY24 to -2% to +2% from the previous range of 0% to +3%. Our new FY24F/FY25F DPU estimates of 6.0 Scts/6.1 Scts imply a forward yield of 8.6%/8.8%.